Reforms too small for sovereign credit benefits: Moody's

Govt seeks to raise Rs 15,000 cr from selling stake in some state-owned cos, but its poor record of divesting stakes in cos suggests high execution risk

Rating agency Moody’s today said India’s government’s decisions like hike in diesel prices, sell part stake in public sector companies and liberalisation of foreign direct investment in retail sector will have minimal effect on India’s credit profile.

The announcements will boost investor sentiment, which has sagged in recent months partly owing to the perception that the government would be unable to implement politically difficult structural reforms to revive growth, Moody’s said.

These steps seek to address specific market concerns about the government’s fiscal position and the deceleration of the country’s investment rate.

However, the effect of the announced reforms on the government’s credit profile is minimal because they are either too small to have material sovereign credit benefits or carry implementation or rollback risks that outweigh any credit positive benefits.

 

Although a diesel price hike would not be material for the sovereign’s credit profile, it is credit positive for the oil marketing companies in India. The increase in diesel prices will lower the monthly fuel subsidies by nearly 15% to about Rs 140 billion from about Rs 165 billion.

While government seeks to raise Rs 15,000 crore from selling stake in some state-owned companies, the government’s poor record of divesting stakes in companies suggests a high execution risk.